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Summary of Pension Revisions: Assembly Bill 340 Future Members

This summary outlines the revisions to the pension system under Assembly Bill 340 for future members, effective from January 1, 2013. The changes include increased retirement ages, adjustments to contribution rates, limitations on post-retirement earnings, and more. The proposal aims to reduce costs and ensure sustainability over the long term.

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Summary of Pension Revisions: Assembly Bill 340 Future Members

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  1. Summary of Pension Revisions Under Assembly Bill 340

  2. Future Members Applicable to new members as of January 1, 2013: • Normal retirement age increased to age 62 with a 2% age factor • Minimum retirement age increased to age 55 • Age for maximum age factor increased from 63 to 65

  3. Current and New Age Factors

  4. Future Members • No career factor • Compensation cap equal to 120 percent of 2013 Social Security wage base (equal to $132,120 in 2012) • Adjusted annually by changes to Consumer Price Index • No defined benefits on compensation above cap

  5. Future Members • Only salary paid on salary schedule counts toward CalSTRS benefit • Excludes allowances, bonuses, cash in-lieu payments • Three-year final compensation for all future members, regardless of years of service • No Replacement Benefits Program

  6. All Current and Future Members • AB 178 changes continued • Increased post-retirement earnings limit • Based on 50 percent of average final compensation, rather than 50 percent of average active member’s salary • Some third party contract employees may be excluded from earnings limit • AB 178 limited exemption extended through 2013-14, and includes additional restrictions based on the receipt of retirement incentives • $0 earnings limit during first 180 days of retirement, regardless of age • Governing body can request exemptions for critical vacancies for members above normal retirement age

  7. All Current and Future Members • No airtime purchases after 2012 • Request to purchase must be received prior to January 1 • Does not affect purchase of other service credit • Forfeiture of benefits for work-related felony convictions • No retroactive benefit enhancements • No pension holidays

  8. Contribution Rates • Contribution rate of future members • Based on greater of either: • At least 50 percent of normal cost of new plan, or • Current member contribution rate • Contribution rate rounded to nearest quarter percent • Adjusted after each valuation if normal cost increases or decreases by more than one percent • Higher member rate subject to collective bargaining

  9. Contribution Rates • Contribution rate of current members remains at 8 percent by contract • Public Employer • At least equal to normal cost less member contribution rate

  10. Fiscal Impact of Proposal • Reduction in normal cost of benefits for future members from 18.51 percentto 15.9 percent • $22.7 billion insavings over 30 years ($12.0 billion insavings in 2013 inflation-adjusted dollars) • Reduced contributions over 30 years (in millions) • Increased required contributions to fully fund DB Program over 30 years reduced by $4.9 billion, based on current actuarial assumptions

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